TOURMALINE CONTINUES DEEP BASIN CONSOLIDATION STRATEGY WITH THE ACQUISITION OF BONAVISTA ENERGY CORPORATION, INCREASES BASE DIVIDEND AND DECLARES SPECIAL DIVIDEND
CALGARY, AB, Oct. 16, 2023 /CNW/ - Tourmaline Oil Corp. (TSX: TOU) ("Tourmaline" or the "Company") is pleased to announce that it has entered into a definitive share purchase agreement with all of the shareholders of Bonavista Energy Corporation ("Bonavista") to acquire all of the shares of Bonavista for $1.45 billion, consisting of $725 million in Tourmaline common shares and $725 million of cash, less Bonavista's net debt(1)(2) at closing (the "Acquisition"). The Acquisition is expected to close in the second half of November 2023, subject to customary regulatory and stock exchange approvals.
The Acquisition represents a further important component of the Company's ongoing consolidation strategy that complements its long-term EP organic growth plan, adding decades of inventory and supplementing Tourmaline's existing Deep Basin assets. The Bonavista assets are a natural extension of Tourmaline's existing operations in the Deep Basin where the Company is already the largest producer. The Acquisition is immediately accretive to Tourmaline's 2024 free cash flow ("FCF")(3) yield(4). Following closing of the Acquisition, Tourmaline expects to exit 2023 with production of over 600,000 boepd(5). The Company will release its formal 2024 guidance proforma this Acquisition with an updated 5-year plan alongside third quarter results on November 1, 2023.
BONAVISTA ACQUISITION OVERVIEW
The Acquisition, which includes low-decline, long-life average production of over 60,000 boepd(6), is expected to generate net operating income(7) of approximately $450 million per year in 2024 through 2026 based on strip pricing(8), with anticipated EP spending(9) of under $225 million per year on the assets.
The Bonavista assets include existing 2P reserves of 459 million boe (10) at October 1, 2023; 839 gross (656.7 net) horizontal internally estimated drilling locations and 1.2 million net acres of land rights.
Bonavista after tax PDP reserve net present value at a 10% discount rate is $1.4 billion (based on internally estimated reserves and IC3 Q4 2023(11) pricing).
Bonavista YTD cash costs(12) to June 30, 2023 were $10.29/boe, including operating costs of approximately $6.14/boe. Tourmaline anticipates considerable cost synergies on the Bonavista assets on a go forward basis.
The Board of Directors of each of Bonavista and Tourmaline have unanimously approved the Acquisition.
Peters & Co. Limited acted as financial advisor to Tourmaline and TPH&Co, the energy business of Perella Weinberg Partners, acted as financial advisor to Bonavista.
BASE DIVIDEND INCREASE AND SPECIAL DIVIDEND DECLARATION
Given continued strong financial forecast for 2H 2023, as well as anticipated sustainable FCF coupled with Tourmaline's low-cost structure, the Board of Directors of the Company has approved an increase to the quarterly base dividend effective Q4 2023 to $1.12/share, on an annualized basis, from the current annualized $1.04/share, representing a 7.7% increase.
The Board of Directors of the Company has also declared a Q4 2023 special dividend of $1.00/share that will be paid on November 1, 2023, to shareholders of record on October 24, 2023. This special dividend is designated as an "eligible dividend" for Canadian income tax purposes.
Reader Advisories
CURRENCY
All amounts in this news release are stated in Canadian dollars unless otherwise specified.
FORWARD-LOOKING INFORMATION
This news release contains forward-looking information and statements (collectively, "forward-looking information") within the meaning of applicable securities laws. The use of any of the words "forecast", "expect", "anticipate", "continue", "estimate", "objective", "ongoing", "on track", "may", "will", "project", "should", "believe", "plans", "intends" and similar expressions are intended to identify forward-looking information. More particularly and without limitation, this news release contains forward-looking information concerning Tourmaline's plans and other aspects of its anticipated future operations, management focus, objectives, strategies, financial, operating and production results and business opportunities, including the following: the completion of the Acquisition including the timing and terms thereof; the Company's anticipated 2023 exit production; the benefits of the Acquisition and the characteristics of the acquired assets including that the Acquisition is immediately accretive to the Company's FCF yield in 2024, the anticipated net operating income to be generated from the acquired assets and the anticipated maintenance capital expenditures thereon, that the acquired assets hold decades of inventory and include low-decline, long-life production, that Tourmaline will realize considerable cost synergies on the acquired assets; the Company's strong financial forecast for 2H 2023 and anticipated sustainable FCF ; as well as Tourmaline's future drilling prospects and plans, business strategy, future development and growth opportunities, prospects and asset base. The forward-looking information is based on certain key expectations and assumptions made by Tourmaline, including expectations and assumptions concerning the following: prevailing and future commodity prices and currency exchange rates; prevailing and future commodity prices and currency exchange rates; applicable royalty rates and tax laws; interest rates; future well production rates and reserve volumes; operating costs, the timing of receipt of regulatory approvals including in connection with the Acquisition; the performance of existing wells; the success obtained in drilling new wells; anticipated timing and results of capital expenditures; the sufficiency of budgeted capital expenditures in carrying out planned activities; the timing, location and extent of future drilling operations; the successful completion of acquisitions (including the Acquisition) and dispositions and the benefits to be derived therefrom; the state of the economy and the exploration and production business; the availability and cost of financing, labour and services; and ability to market crude oil, natural gas and NGL successfully. Without limitation of the foregoing, future dividend payments, if any, and the level thereof is uncertain, as the Company's dividend policy and the funds available for the payment of dividends from time to time is dependent upon, among other things, free cash flow, financial requirements for the Company's operations and the execution of its growth strategy, fluctuations in working capital and the timing and amount of capital expenditures, debt service requirements and other factors beyond the Company's control. Further, the ability of Tourmaline to pay dividends is subject to applicable laws (including the satisfaction of the solvency test contained in applicable corporate legislation) and contractual restrictions contained in the instruments governing its indebtedness, including its credit facility.
Statements relating to "reserves" are also deemed to be forward looking information, as they involve the implied assessment, based on certain estimates and assumptions, that the reserves described exist in the quantities predicted or estimated and that the reserves can be profitably produced in the future.
Although Tourmaline believes that the expectations and assumptions on which such forward-looking information is based are reasonable, undue reliance should not be placed on the forward-looking information because Tourmaline can give no assurances that it will prove to be correct. Since forward-looking information addresses future events and conditions, by its very nature it involves inherent risks and uncertainties. Actual results could differ materially from those currently anticipated due to a number of factors and risks. These include, but are not limited to: the risks associated with the oil and gas industry in general such as operational risks in development, exploration and production; delays or changes in plans with respect to exploration or development projects or capital expenditures; the uncertainty of estimates and projections relating to reserves, production, revenues, costs and expenses; health, safety and environmental risks; commodity price and exchange rate fluctuations; interest rate fluctuations; marketing and transportation; loss of markets; environmental risks; competition; incorrect assessment of the value of acquisitions including the Acquisition; failure to complete or realize the anticipated benefits of acquisitions including the Acquisition or dispositions; ability to access sufficient capital from internal and external sources; uncertainties associated with counterparty credit risk; failure to obtain required regulatory and other approvals; climate change risks; severe weather (including forest fires); inflation; supply chain risks; the impact of wars or other hostilities (including the war in Ukraine) and pandemics (including COVID-19); and changes in legislation, including but not limited to tax laws, royalties and environmental regulations. Readers are cautioned that the foregoing list of factors is not exhaustive.
Additional information on these and other factors that could affect Tourmaline, or its operations or financial results, are included in the Company's most recently filed Management's Discussion and Analysis (See "Forward-Looking Statements" therein), Annual Information Form (See "Risk Factors" and "Forward-Looking Statements" therein) and other reports on file with applicable securities regulatory authorities and may be accessed through the SEDAR+ website (www.sedarplus.ca) or Tourmaline's website (www.tourmalineoil.com).
The forward-looking information contained in this news release is made as of the date hereof and Tourmaline undertakes no obligation to update publicly or revise any forward-looking information, whether as a result of new information, future events or otherwise, unless expressly required by applicable securities laws.
RESERVES DATA
The reserves data set forth in this new release is based upon internal estimates. There are numerous uncertainties inherent in estimating quantities of crude oil, natural gas and NGL reserves and the future cash flows attributed to such reserves. The reserve and associated cash flow information set forth above are estimates only. In general, estimates of economically recoverable crude oil, natural gas and NGL reserves and the future net cash flows therefrom are based upon a number of variable factors and assumptions, such as historical production from the properties, production rates, ultimate reserve recovery, timing and amount of capital expenditures, marketability of oil and natural gas, royalty rates, the assumed effects of regulation by governmental agencies and future operating costs, all of which may vary materially. For those reasons, estimates of the economically recoverable crude oil, NGL and natural gas reserves attributable to any particular group of properties, classification of such reserves based on risk of recovery and estimates of future net revenues associated with reserves prepared by different engineers, or by the same engineers at different times, may vary. The Company's actual production, revenues, taxes and development and operating expenditures with respect to its reserves will vary from estimates thereof and such variations could be material.
BOE EQUIVALENCY
In this news release, production and reserves information may be presented on a "barrel of oil equivalent" or "BOE" basis. BOEs may be misleading, particularly if used in isolation. A BOE conversion ratio of 6 Mcf:1 bbl is based on an energy equivalency conversion method primarily applicable at the burner tip and does not represent a value equivalency at the wellhead. In addition, as the value ratio between natural gas and crude oil based on the current prices of natural gas and crude oil is significantly different from the energy equivalency of 6:1, utilizing a conversion on a 6:1 basis may be misleading as an indication of value.
NON-GAAP AND OTHER FINANCIAL MEASURES
This news release contains the terms "free cash flow", "net operating income", "EP spending" and "cash costs", which are considered non-GAAP financial measures, and the term "net debt", which is considered a capital management measure. These terms do not have a standardized meaning prescribed by GAAP. Accordingly, the Company's use of these terms may not be comparable to similarly defined measures presented by other companies. Investors are cautioned that these measures should not be construed as an alternative to or more meaningful than the most directly comparable GAAP measures in evaluating the Company's performance. See "Non-GAAP and Other Financial Measures" in the most recent Management's Discussion and Analysis for more information on the definition and description of certain of these terms.
Non-GAAP Financial Measures
Free Cash Flow
Management uses the term "free cash flow" for its own performance measure and to provide shareholders and potential investors with a measurement of the Company's efficiency and its ability to generate the cash necessary to fund its future growth expenditures, to repay debt and provide shareholder returns. Free cash flow is defined as cash flow less capital expenditures, excluding acquisitions and dispositions. Free cash flow is prior to dividend payment. "Cash flow" is defined as cash flow from operating activities less current income taxes, plus current income taxes paid, less change in non-cash working capital. The most directly comparable GAAP measure for cash flow is cash flow from operating activities. "Capital Expenditures" is a non-GAAP financial measure defined as Cash flow used in investing activities adjusted for the change in non-cash working capital (deficit). The most directly comparable GAAP measure for capital expenditures is cash flow used in investing activities.
Net Operating Income
Management uses the term "net operating income" as a key performance indicator and one that is commonly presented by other oil and natural gas producers. Net operating income for the purposes of the Acquisition is defined as the sum of revenue less the sum of royalties, transportation costs and operating expenses.
Capital Management Measure
Net Debt
Management uses the term "net debt" as a key measure for evaluating a company's capital structure and to provide shareholders and potential investors with a measurement of total indebtedness. For purposes of the Acquisition, net debt is defined as all indebtedness (including bank debt) plus working capital (excludes commodity hedges) and includes all transaction and related costs.
OIL AND GAS METRICS
This news release contains certain oil and gas metrics which do not have standardized meanings or standard methods of calculation and therefore such measures may not be comparable to similar measures used by other companies and should not be used to make comparisons. Such metrics have been included in this document to provide readers with additional measures to evaluate the Company's performance; however, such measures are not reliable indicators of the Company's future performance and future performance may not compare to the Company's performance in previous periods and therefore such metrics should not be unduly relied upon.
ESTIMATES OF DRILLING LOCATIONS
Unbooked drilling locations are the internal estimates of Tourmaline based on Tourmaline's or the acquired assets prospective acreage and an assumption as to the number of wells that can be drilled per section based on industry practice and internal review. Unbooked locations do not have attributed reserves or resources (including contingent and prospective). Unbooked locations have been identified by Tourmaline's management as an estimation of Tourmaline's multi-year drilling activities based on evaluation of applicable geologic, seismic, engineering, production and reserves information. There is no certainty that Tourmaline will drill all unbooked drilling locations and if drilled there is no certainty that such locations will result in additional oil and natural gas reserves, resources or production. The drilling locations on which Tourmaline will actually drill wells, including the number and timing thereof is ultimately dependent upon the availability of funding, regulatory approvals, seasonal restrictions, oil and natural gas prices, costs, actual drilling results, additional reservoir information that is obtained and other factors. While a certain number of the unbooked drilling locations have been de-risked by Tourmaline drilling existing wells in relative close proximity to such unbooked drilling locations, the majority of other unbooked drilling locations are farther away from existing wells where management of Tourmaline has less information about the characteristics of the reservoir and therefore there is more uncertainty whether wells will be drilled in such locations and if drilled there is more uncertainty that such wells will result in additional oil and gas reserves, resources or production.
GENERAL
See also "Forward-Looking Statements" and "Non-GAAP Financial Measures" in the most recently filed Management's Discussion and Analysis.
CERTAIN DEFINITIONS:
1H | first half |
2H | second half |
bbl | barrel |
bbls/day | barrels per day |
bbl/mmcf | barrels per million cubic feet |
bcf | billion cubic feet |
bcfe | billion cubic feet equivalent |
bpd or bbl/d | barrels per day |
boe | barrel of oil equivalent |
boepd or boe/d | barrel of oil equivalent per day |
bopd or bbl/d | barrel of oil, condensate or liquids per day |
CNG | compressed natural gas |
DUC | drilled but uncompleted wells |
EP | exploration and production |
gj | gigajoule |
gjs/d | gigajoules per day |
JKM | Japan Korea Marker |
mbbls | thousand barrels |
mmbbls | million barrels |
mboe | thousand barrels of oil equivalent |
mboepd | thousand barrels of oil equivalent per day |
mcf | thousand cubic feet |
mcfpd or mcf/d | thousand cubic feet per day |
mcfe | thousand cubic feet equivalent |
mmboe | million barrels of oil equivalent |
mmbtu | million British thermal units |
mmbtu/d | million British thermal units per day |
mmcf | million cubic feet |
mmcfpd or mmcf/d | million cubic feet per day |
MPa | megapascal |
mstb | thousand stock tank barrels |
natural gas | conventional natural gas and shale gas |
NCIB | normal course issuer bid |
NGL or NGLs | natural gas liquids |
TCF | trillion cubic feet |
TCFe | trillion cubic feet equivalent |
ABOUT TOURMALINE OIL CORP.
Tourmaline is Canada's largest and most active natural gas producer dedicated to producing the lowest emission and lowest-cost natural gas in North America. We are an investment grade exploration and production company providing strong and predictable operating and financial performance through the development of our three core areas in the Western Canadian Sedimentary Basin. With our existing large reserve base, decades-long drilling inventory, relentless focus on execution and cost management, and industry-leading environmental performance, we are excited to provide shareholders an excellent return on capital, and an attractive source of income through our base dividend and surplus free cash flow distribution strategies.
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(1) | This news release contains certain specified financial measures consisting of non-GAAP financial measures, non-GAAP financial ratios and capital management measures. See "Non-GAAP and Other Financial Measures" in this news release for information regarding the following specified financial measures: "free cash flow", "net debt", "net operating income", "EP spending" and "cash costs". Since these specified financial measures do not have standardized meanings under International Financial Reporting Standards ("GAAP"), securities regulations require that, among other things, they be identified, defined, qualified and, where required, reconciled with their nearest GAAP measure and compared to the prior period. See "Non-GAAP and Other Financial Measures" in this news release and in the Company's most recently filed Management's Discussion and Analysis (the "Q2 MD&A"), which information is incorporated by reference into this news release, for further information on the composition of and, where required, reconciliation of certain of these measures. |
(2) | "Net debt" is a capital management measure defined for these purposes as all indebtedness (including bank debt) plus working capital (excludes commodity hedging) and includes all transaction and related costs. |
(3) | "Free cash flow" is a non-GAAP financial measure defined as cash flow less capital expenditures, excluding acquisitions and dispositions. Free cash flow is prior to dividend payments. "Cash flow" is a non-GAAP financial measure and is defined as cash flow from operating activities less current income taxes, plus current income taxes paid, less change in non-cash working capital. "Capital Expenditures" is a non-GAAP financial measure defined as Cash flow used in investing activities adjusted for the change in non-cash working capital (deficit). See "Non-GAAP and Other Financial Measures" in this news release. |
(4) | Calculated as forecast 2024 FCF per diluted share (based on estimated diluted Common Shares of 354 million) divided by a Common Share price of $67. |
(5) | Comprised of approximately 43% Conventional Natural Gas, 33% Shale Natural Gas, 9% Light and Medium Crude Oil and Condensate and 16% NGLs. |
(6) | Comprised of approximately 64% Conventional Natural Gas, 5% Light and Medium Crude Oil and Condensate and 31% NGLs. |
(7) | "Net operating income" is a non-GAAP financial measure and is calculated as expected revenue of $725 million less royalties of $100 million, transportation costs of $35 million and operating expenses of $140 million. See "Non-GAAP and Other Financial Measures" in this news release. |
(8) | Based on oil and gas commodity strip pricing at September 20, 2023. |
(9) | "EP spending" is a non-GAAP financial measure and is defined as anticipated capital expenditures, excluding acquisitions, dispositions, exploration capital and other corporate expenditures. |
(10) | Reserves have been internally estimated by qualified reserve evaluators in accordance with National Instrument 51-101 – Standards of Disclosure for Oil and Gas Activities and the Canadian Oil and Gas Evaluation Handbook with an effective date of September 30, 2023. |
(11) | IC3 Q4 2023 pricing is the average of forecast prices published by Sproule Associates Ltd., GLJ Ltd. and McDaniel & Associates Consultants Ltd. as at October 1, 2023 (each of which is available on their respective websites at www.sproule.com, www.gljpc.com, and www.mcdan.com) |
(12) | "Cash Costs" is a non-GAAP financial measure defined as operating, transportation, general & administrative and interest expenses. See "Non-GAAP and Other Financial Measures" in this news release. |
SOURCE Tourmaline Oil Corp.
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